jonathan: from new york city for our audience worldwide, i'm jonathan ferro. bloomberg "real yield," starts right now. ? jonathan: coming up, the return of the goldilocks jobs report and u.s. payrolls bouncing back despite signs of a solid labor market, the president repeating his call for rate cuts, and further distortions in global fixed income. credit with subzero yield piling up. we begin with a big issue, the goldilocks jobs report returns. >> a solid report. it is drawing numbers. >> the perfect report for the fed. >> this corroborates what

they've been saying all along. >> inflation pressures remain pretty subdued. >> this is a goldilocks report. >> we are threading the needle. >> businesses have not lost confidence. >> chairman powell's famous words, he is not sure if it is debt or fake, but it is resting. this is confirmation of that. >> people said, watch the phillips curve. we will be talking about that every month. it will not happen. >> very little risk of wage inflation. >> huge growth when you look at education, leisure. that shift is a big deal because that shift means less inflation. more stable inflation. >> all of that points to the fact that things are looking good for the u.s. labor market at the moment. jonathan: continuing the conversation, we have robert -- chief investment strategist. scott kimball joins us. krishna mamani joins us from oppenheimer funds.

do you agree with all of that, is this a goldilocks job report? krishna: absolutely, it's been a goldilocks environment for quite a bit. the driver of that is relatively straightforward. lack of inflation. as long as we have no inflation whether wage inflation or other ,sources, that is how things will be. jonathan: robert? robert: the inflation is moderate, pce has been coming in solidly below 2, 1.67 the last six months. the job number is strong but there is no wage acceleration. unemployment has been stable for six months. many people coming into the workforce getting new jobs. that means maybe it can go faster. i think this is a signal to the fed that maybe the president was right, but has got to be really dialing. when you are doing your best to do your job, and then suddenly slams you, and they are right.

we were growing at over 200,000 last year. we were not really inflating the economy. maybe if they had that hiked rates so much, we would be growing at a rapid rate and have inflation a target. jonathan: a couple of assumptions underlined in this conversation. let's pick up on one of them. a number of years ago, the idea that we must begin to the point where payroll decelerates, going back to 100,000. still a healthy labor market, just a mature one. why have we not gotten to that point, why is it taking longer? >> one of the things that is frustrating investors and the fed likewise is the traditional assumptions from models that would tell you that from a timeline perspective we should , see those things where payrolls start matriculating toward the lower running average. the particular element of this recovery, which is different is that all the rules have been broken. you had a lot of engineering of financial systems, low cost of weighted average capital, which is requiring the internal rate of return for projects.

there is still a lot of positive carry to making investments. that is probably one of the big drivers of what is keeping the payroll numbers a bit more buoyant than you would expect. krishna: i think payroll numbers our boy and -- payroll numbers are buoyant because there is still a large amount of labor force available that can come in. the number that we should not focus on is the unemployment rate. that is what is probably conditioned people to think perhaps in a misguided way. at the end of the day, the u.s. economy is still growing at trend rate of 2%. as long as we have a trend growth rate of 2% and there is still a large pool of available labor force that can come into the market, if the markets are going to remain resilient, and the economy will be ok. jonathan: robert says we can run this economy harder and faster. you told me multiple times five , more years. that is your argument.

does this play into that? krishna: this certainly plays into that. robert tries to stress the economy. it would work out that way. that is how we were in 2018. the fed, working off of old formulas of the phillips curve was on the verge of making a policy mistake. if the inflation pressure builds up the risk is that the fed , goes back td slams too hard. i would rather have the current 2% trend growth rate rather than stress it too hard. that is why i am wary of the fed surrendering in the january and february of this year. effectively, they did not have to give to the market all the things they gave. they could've stopped tightening, and would have been ok. jonathan: they did, and you look happier every time i see you. krishna: i am happy because they stopped tightening. i am not happy that they basically put everything on the table. jonathan: the president is calling for a whole lot more. to -- take a look at what

president trump had to say about what he had to say about what the fed's next move should be. president trump: the fed should drop rates. i think they really slowed us down. there is no inflation. i would say in terms of quantitative tightening, it should now be quantitative easing. jonathan: so money different ways we could go with all of -- so many different ways we could go with all of this. robert, the fed's next move and how the president's calls play into it. robert: that was quite an expensive: his part quantitative , easing. to the point that the job growth has been strong that is to the , fed's credit. they have been more cautious than any fed in terms of raising rates and that's been , spectacular for the length of this expansion. the financial institutions are really well-capitalized here compared to past cycles. people are scarred by the past cycles, worried we will have a balloon if we get faster growth. i don't think that's true. to krishna's point, your employment-population ratio is very low.

there are a lot of people on the sidelines that really need to come into the workforce. given the demographics, savings levels in this economy. i think it has quite a ways to go. i think they could easily -- i am not saying they would do this, but they did put everything on the table. they took those dots to flat, and i think powell is not an economist, and he may be open to cutting rates. jonathan: do you think he will, if they think they can run it harder, faster, will they cut rates, even without the typical conditions we associate with a cutting cycle at the federal reserve? robert: this kind of report and the data we have, inflation of a slowing interest-rate cycle falling away from target that , would signal to me, in my mind, that they should be cutting. krishna: they have demonstrated that given the opportunity they could. they didn't have to do all the things that they did, but they did. however, if they do that, that would be a mistake. much in the way that tightening

in 2018 as aggressively as they did was a mistake. cutting rates today, when things are turning up, when things are probably going to get closer to 2% in the second half of the year, that would be a policy mistake. they would hurt their own credibility. the fed cannot afford that. jonathan: let's talk about the perception of independence. operationally, the fed is independent. by definition, the administration and as previous administrations have done, you can nominate who you like for the federal reserve. you can see if they get nominated and confirmed by the senate ultimately. i don't think we should be hypocrites about this. once upon a time, barack obama wanted to nominate larry summers, who was once the treasury secretary. this feels different, though. herman cain, stephen moore. not quite from the same mold as larry summers. does this complicate -- compromise the perception of the federal reserve independence? krishna: if you want the fed to say 9-9-9, you nominate herman cain. as we don't want to do that, to

some extent it is basically demeaning the fed. it doesn't mean that you should not take input from the business community. the fed has very detailed processes to incorporate those points. but nominating herman cain to the fed, or for that matter, stephen moore, where he has said so many bad things, i don't think is the right move. jonathan: i don't want to judge the intent of the administration. ultimately, the perception of this matters. you guys define it. if these guys are confirmed to the federal reserve, in your mind, has this federal reserve lost some form of independence? scott: i don't know if i would go there from a policy perspective that they have lost independence. i think you are starting to see a transition in the type of a cycle analysis that the fed is doing. typically, you have seen people nominated -- people studying economic cycles. you look at 2004, 2006, gauge the reaction function from the monetary policy side. i think what this administration

is doing is putting people in play that have a business cycle viewpoint. i think that ties into what the president is doing by commenting on policy and quantitative easing and calling for rate cycles to decline after they just accelerated. jonathan: great to have you with us. you are going to stick with us. coming up on the program, further distortions in fixed income. credit with subzero yields continuing to pile up. we head to europe next. that conversation is around the corner. this is bloomberg "real yield." ?

♪ jonathan: i'm jonathan ferro. this is bloomberg "real yield." i want to head to the auction block.

we begin in the united states, with the investment grade market, where low pause sold bonds for the first time since joining the lowest rate tier. they sold $3 billion of bonds in 2 parts with the longest portion of the offering yielding percentage points above 1.65 treasury. heading to emerging markets, tencent selling a $6 billion bond in the largest dollar offering in asia this year. the $3 billion 10-year bond yielding 1.45 percentage points more than the current 10-year treasury. finally, in europe, spain's auction of 10-year notes was oversubscribed. burnished by juicier spreads. 1.80 one billion euros 2029 auction priced at an average yield of 1.12%. i want to stay with europe. blackrock's rick rieder looking for a big move from ecb president mario draghi. >> we looked at companies's weighted average cost of capital. the cost of debt in europe is much lower. the cost of equity is too expensive. i think the ecb will buy their

equities. why do you do that? if i want to do, improve sentiment, look at the right part of the capital stack, that is where the companies are having a tough time. jonathan: still with me to discuss is robert tipp, scott kimball, and krishna memani. krishna, your view on that suggestion? krishna: in this cycle you cannot rule out anything. having said that, if the ecb is buying stocks, we are basically at the end of the rope. that is what it would signal more than anything else. because everyone would have tried everything and basically even the germans are acquiescing to buying stocks at the central bank level. that would be something. jonathan: to someone with exposure to european markets, are you saying that would push you into de-risking? krishna: absolutely. that would signal to me that we are at the end of the world rather than things getting better. i think it would be a very big mistake on the part of the ecb.

there are lots of things they can do in the interim before they get to that step. jonathan: what can they do in the interim? scott: as we are learning the u.s., policy signal can be equally important to policy implementation. the long story on that will be if that were to be put into play, the ecb coming in and playing with tlro structures on putting more capital into the banking system, there is a limited total rate of return from the ecb's perspective, the transmission mechanism of the economy will not be fantastic. they have to extend that facility, and they have to do it sooner than june would be my expectation. robert: i think that's right. we have a lot of experience with qe. when you look at japan, they have been doing this since the 1990's. when you think about the end game, you strangle your government bond market, basically make it unrewarding and almost unsafe for investors. then they moved on to equities. what can happen in the long run is you make the equities unsafe. you make them less attractive,

as a performance vehicle and more dangerous. i think that's the wrong way to go, lending is the right channel. once you hit the zero lower bound, you have to make the lending attractive enough. jonathan: what strikes me as insane, 10 years ago, you would've called us conspiracy theorists for mentioning a central bank buying equity. have we started to normalize the absurd, particularly in europe? when you look at the european price action and when you look at where these markets are priced at the moment. krishna: we are getting used to the absurd, i guess. as i mentioned, in this cycle, everything is possible. even there, there are shades of -- there are shades of possible if you will. the germans buying stocks would be something. having said that, what is the purpose of the central bank? the purpose of the central bank is not to support asset prices. the purpose of the central bank is to fil groth. the credit driven economic growth.

buying stocks does not really help much. jonathan: the central bank believes that is a means to an end, i believe. that is ultimately what the ecb is doing, supporting assets. krishna: they are not supporting assets. the purpose of quantitative easing is not to support asset prices. that is what the outcome is. the purpose of quantitative easing is to support credit growth. there are lots of things that the ecb can and will do to support credit growth. jonathan: the result is financial repression, and you have to deal with it. we hear a lot of people ask questions like, what is the bond market telling me, what can i infer from price? what is the signal at the moment? can you take any signal from european assets given where the price is right now? scott: european assets are experiencing an elongated playbook from what we see in the u.s., you strangle the front end, force investors to extend their duration and take credit risk. they are doing that at an extreme level. the return on investment has become total return driven and less yield driven.

you have investors who are sticking with the playbook and are continuing to pile into credit. the big question is what happens next? is equities where you go? i don't think so, i have to agree with krishna on that. i think that would be one step too far and you would start blurring the lines of what your actual output of policy is supposed to be. jonathan: let's talk about your exposure to the european credit risk. what is it? robert: positive. the spreads are substantial. the ecb is basically going from thinking they were going to be ending their by program and raising rates and now they are , trying to sneak the deposit rate up to zero so it does not punish the banks. they are ahead of the curve compared to japan, so they may be stuck here for a long time. investors are going out on the yield curve, dropping their yield targets, they are going into spread product, and that will be supportive. the fundamentals are strong enough that you don't have

deteriorating credit quality that would suggest this is going to be a near or intermediate term credit blowout. jonathan: you are very constructive on the global economy, but i don't hear that from you, so what have you been doing in terms of managing your exposure on the continent? krishna: the way we have managed our exposure on the continent is to recognize that owning bunds doesn't do much for you. you may get some price appreciation but that is , relatively modest. our exposure has been really european credit to make up for the negative yield. i think things have worked out -- at various points, when bunds back up from negative to plus 40, we pay the price. through the cycle, it's been a good trade. jonathan: which segment, sector, investment grade, high yield? krishna: primarily high yield is where we are focused. scott: our exposure is a little different. our more interesting story to play is the brexit story. we found some opportunities,

in specifically u.k.-based banks. towards the front end, we see yields in the fourth quarter pushed to 6.5%, 7%. that has been more of our opportunity. we have not taken up a lot of exposure in the rest of the european union. jonathan: great to have you with me. you are going to stay with me. scott kimball, robert tipp, krishna memani. next, i want to get a market check on where the bonds have been. yields are higher this week by a basis point. 2.34 on the 2-year. creeping back toward 3% on a 30 year yield. still ahead, the final spread, the week ahead featuring fed minutes, and an ecb decision. this is bloomberg "real yield." ♪

♪ jonathan: i'm jonathan ferro. this is bloomberg "real yield." time for the final spread. coming up over the next week,

fed vice chair richard clarida speaking at an event hosted by the minneapolis fed. we get u.s. cpi data and the fomc releasing the minutes from its march meeting. plus, an ecb rate decision followed by mario draghi's news conference in frankfurt. for final thoughts, robert tipp is with me, alongside scott kimball, and krishna memani. robert, i know you are itching to get in on the european debate. what do you want to say? robert: in addition to the high yield, which i think is attractive, there are definitely opportunities there, as well as investment grade, high quality clo's. the contrarian play in europe continues to be sovereigns. they were beat up in that crisis. people are missing that. at any given point in time, one country will be in the headlines. italy, for example, now. in the background, the greeks are getting a billion dollars released to them. they are 300-plus over. they have a long way to go. spain, portugal.

it is a contrarian play but i , don't think this is anywhere near over. jonathan: underpinning that, is there a belief that you think the periphery, which has been treading lately, will start trading like a sovereign again? robert: that's right, i see this is an ongoing trend. we have to watch this and see that it plays out, that the improvement is not cyclical. the numbers on the face of it, for spain, they are comparable in credit to the united states. they have one of the better growth profiles in europe. there will be some political headlines there, but if they say -- if they stay with the program, and europe is one of the only places that has a rulebook on the physical side. i think the spreads will be cut in half over the next five years. jonathan: that is certainly contrarian. the periphery has behaved like credit. do you think that we are making that transition slowly? krishna: not at all. yes, the periphery is a good investment, but does thinking

that they would start trading like sovereign bonds anytime soon given the state of the economy in some parts of the continent, i don't think that's a realistic outcome in any investment horizon. scott: i would have to agree with krishna. our position has consistently been that you have to approach some of the economies and their debt as credit functions. jonathan: a definition of contrarian. we have to wrap up the program. you know how we do that. rapidfire round, three quick questions and three quick answers. first question, does the ecb cut the depot right before the year is out? yes or no? robert: no. scott: no. krishna: maybe. jonathan: maybe. come on. u.s. 10 year yield, 2.388%. have we seen the low for the year on the u.s. 10 year yield already in 2019 yes or no? robert: no. scott: why not.

krishna: yes. jonathan: does moran kaine get nominated and confirmed by the senate, yes or no? robert? robert: no. scott: no. krishna: i sure hope not. jonathan: there we go. three big calls from three great guests. robert tipp, scott kimball, krishna memani, thank you. i wish we had time for more on that. we will see you next friday at 1:00 p.m. new york time, 6:00 p.m. in london. this was bloomberg "real yield"" this is bloomberg tv. ♪ the biggest week in television is almost here.

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